The site near Weston-super-Mare proposed for the English side of the Severn Barrage. Photograph: Matt Cardy/Getty Images

Plans for the world's biggest tidal energy project, spanning the Severn estuary between Somerset and Wales, are likely to be dashed tomorrow when the government announces its refusal to back the controversial £21bn project with public finance.

The 10-mile-long scheme, which the Department of Energy and Climate Change (Decc) believes could provide 8.6GW of renewable electricity - equivalent to 5% of the UK's needs and two or three nuclear power stations - has long proved controversial. Engineers first proposed plans for a barrage across the Severn in the 1930s. The scheme has divided environmentalists, some of whom say it would destroy an internationally important marsh and mudflat habitat, increase local flooding and reduce fish stocks.

The department will publish its decision on whether or not to back the project tomorrow morning, but sources close to the process have told the Guardian they cannot conceive of the government backing it with public finance at a time when it is focused on cutting the budget deficit. The department's own documents state that the Cardiff-Weston barrage could not be built without government funding. The financing and ownership options report, published in December 2008, says: "A larger scheme would not be constructed without public sector intervention [because] the private sector would not have the capacity to finance or build the scheme without government support."

Jonathon Porritt oversaw a 2007 report that backed the giant barrage while he was chair of the government advisory body, the Sustainable Development Commission, which was itself abolished last week. Last night he said: "If the government is not prepared to find any mechanism to put public funds into the pot, it will die..

"It's a good way to generate a lot of clean energy," he said. "If it is a choice between a [large] barrage on the Severn and two nuclear power stations, then it is clear to me which is better - it is the barrage."

Last month, the Observer revealed the large barrage was unlikely to go ahead and that ministers were expected to recommend that further feasibility studies be carried out on one of four much smaller projects, which would cost about £3bn and have a capacity between 0.6GW and 1.4GW. But ministers are not expected to give any guarantee that the selected option will go ahead. "It will make pretty depressing reading," according to a source who had seen the report.

• Shoots barrage: would generate about 1GW, equivalent to a large fossil fuel plant.

• Beachley barrage: further upstream again, just above the Wye river, would generate about 0.6GW.

• Bridgewater Bay lagoon: would impound a section of the estuary on the coast between east of Hinkley Point and Weston-super-Mare, would generate 1.36GW.

• Fleming lagoon: a similar scheme which would generate the same power from a section of the Welsh shore between Newport and the Severn road crossings.

Roger Hull, spokesman for the Severn Tidal Power Group, a consortium of engineering and construction companies that has supported plans for Severn tidal projects for over 20 years, said that even these smaller-scale projects would require considerable government funding. "The renewable energy available from the tides in the Severn estuary are enormous and we as a nation should be making use of them," he said.

The government is committed to generating 20% of the UK's energy from renewable sources by 2020 in order to cut the nation's greenhouse gas emissions and limit the impact of climate change. Days after becoming prime minister, David Cameron said he wanted his government to be the "greenest ever"; ruling out the largest Severn barrage would mean that more of the other low-carbon sources of energy, such as wind, solar and nuclear, will have to be developed.

Nik Shelton, of the RSPB, which opposes the Cardiff-Weston barrage, said: "We want the Cardiff-Weston barrage turned down for ecological reasons, not economic ones, as the latter leaves the door open for this destructive scheme to be resurrected at a later date."

Steph Merry, head of marine renewables at the Renewable Energy Association, said last year that only the giant barrage made sense. "You need something that is a large-scale project on the same scale as a power station in order to meet the renewables targets. The Severn barrage, or something similar, is the only way of achieving that. It's much bigger than any other marine renewable or solar or wind."

The 2007 SDC report controversially suggested the wetlands lost under a Cardiff-Weston barrage could be compensated for by the sacrifice of low-grade farmland in East Anglia, Wales and elsewhere, which was already proving impractical to defend against sea level rises. It also argued the large barrage could provide a much-needed additional river crossing.